Debt Schedule

What is a Debt Schedule?

Debt Schedule is the list of debts that the business owes which includes term loans, debentures, cash credit etc. where business organizations prepare this schedule in order to know the exact amount of the liability the business which they owe to others and to manage its cash flows so as to prevent from financial crisis and enable better debt management.

Explanation

Every organization has sources of funds and application of funds; the sources of funds might be owned funds or owed funds. Owed sources of funds carry an interest cost, which has to be borne by the organization. It contains the details of the debt the organization owed to others; in short, it contains the details of owed funds. The owed fund includes the outside borrowings taken on interest to apply in the business. It also contains the amount borrowed, interest expenses, and the amount repaid from the debts. Before applying for debt, the organization has to consider the need, interest rate, present value, benefits from applying it, maturity period, repayment schedule, etc. to analyze whether obtaining debt will be favorable or not. Preparing a debt schedule is important to know the maturity period and expenses related to debt to manage the cash flows.

Debt Schedule

Components

The major components are as under –

  • Opening Balance – Opening Balance is the outstanding balance of the debt that the organization has to repay.
  • Debt Taken During the Year – In debts taken during the year, the details about fresh debt taken are written in detail. The maturity period, interest rate, repayment schedule also to be provided.
  • Interest Expense – In interest expense, the details about total interest paid during the year has to be provided.
  • Repayments During the Year – The details about the total principal paid during the year are provided to enable the balance due payment.
  • Closing Balance – In closing balance, the details about the total outstanding debt at the end of the year are provided to know the position of debt at the year-end.

In this schedule, the details about each debt are to be provided separately. The proforma of debt schedule is as under –

Debt Schedule Example 1.1

Example of Debt Schedule

Debt Schedule Example

Prepare Debt Schedule.

Solution

Debt Schedule Example 1

Types

There are many types of debts, and for each debt, a separate schedule is to be prepared. Some of the types of debt schedules are as under –

Types of Debt Schedule

Loan Schedule

In the loan schedule, the details about all types of loans taken by the organization are to be written like a term loan, mortgage loan, housing loan, etc. to be given separately under the Loan Schedule.

Debentures Schedule

In Debentures Schedule, the details about the all debenture issued and their repayment schedule are provided.

Bonds Schedule

In Bonds Schedule, the details about the organization’s bonds are provided to know the debt structure.

Lease Schedule

In the Lease Schedule, the details about the properties or goods taken on lease are provided.

Factors of Debt Schedule

  • Terms of Debt – While drafting the debt schedule, the terms of debt is the most important factor. If the terms of the debt are favorable, then only one can opt for obtaining the debt.
  • Interest Rate – Interest rate also plays an important role in the structure of debt. If the interest rates are favorable, then only one can opt for obtaining the loan as interest is the expenses for the organization.
  • Type of Interest Rate, i.e., Fixed or Floating – While obtaining the loan, the type of interest rate also plays a major role. Sometimes floating interest rate is considered as risky as compared to fixed interest rates.
  • Repayment Structure – Repayment Structure also plays a vital role in the debt schedule. If the repayment schedule is favorable with cash flows, then only the organization thinks about obtaining the debt.
  • Net Benefits from Debt – The purpose for which debt is obtaining, if the profit from the purpose is more than the cost of the debt, then only the organization will think about obtaining the debt considering the income cost-benefit.
  • Maturity Period – If the Maturity Period is shorter, then usually organization will not opt for obtaining the loan and vice versa.

Importance

  • Aid in Decision Making – Helps in decision making to know whether to obtain the additional debt or not and the cost involved in the debt.
  • Monitor the Debt Debt Schedule determined the debt monitoring as maturity, interest expenses, etc. can be traced.
  • Source of Funds – Helps to know the source of the funds to enable the proper source and ratio of debt-equity.
  • Measuring the Risk – Helps in measuring the risk of investment in the company by the investor.

Conclusion

Debt Schedule is the list of debts obtained by the organization and includes various debts like debentures, term loans, bonds, and leases. It helps the organization in making proper decisions related to finance. Debt restructuring also helps in keeping track of the maturity of the debts. It helps the investors to make decisions regarding investment decisions. Various factors like interest rate, repayment schedule, etc. are the main factors to be considered while applying for various types of debt.

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This has been a guide to what is Debt Schedule. Here we discuss its components, types, factors, example along with its benefits. You may learn more about financing from the following articles –

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